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Naira Has Worst Week in 9 on Spending Speculation, Dollar Demand

The naira fell, extending its worst week against the dollar in nine, on speculation government spending will rise and as corporate demand for foreign exchange increased after the central bank reduced supply.

The currency of Africa’s biggest oil producer weakened less than 0.1 percent to 157.1 a dollar by 2:49 p.m. in Lagos, the commercial capital. The naira has retreated 0.5 percent this week, the worst five-day performance since Nov. 16, according to data compiled by Bloomberg.

Nigeria’s legislature approved a 4.98 trillion-naira ($31.7 billion) budget for 2013 in December, 7 percent higher than this year, and raised the benchmark oil price in this year’s budget by $4 to $79 a barrel, giving more funds to the government for spending. The budget will be based on an exchange rate of 160 naira a dollar. President Goodluck Jonathan hasn’t yet signed the budget or rejected it.

“Given the intended liquidity injections and assumption of dollar-naira at 160 in the 2013 budget, the naira might come under pressure due to increased government spending,” Kunle Ezun and Kenneth Asenime, analysts at Ecobank Transnational Inc., wrote in an e-mailed note to clients today. “This increased spending will boost money supply growth, leading to price and exchange-rate pressures.”

The Central Bank of Nigeria sold $120.30 million this week at auction, a 38 percent decline from last week, according to data on its website. The regulator sells foreign exchange at auctions on Mondays and Wednesdays to stabilize the naira. Fuel imports have been a source of pressure on the naira, according to the Abuja-based bank.

Planning Ahead

“People are just getting deposits for the year ready,” Jide Solanke, an analyst at First Securities Discount House Ltd., said by phone from Lagos today. “Firms are planning how to go ahead for the rest of the year.”

Yields on naira debt due 2022 fell 10 basis points to 11.27 percent, according to yesterday’s prices compiled on the Financial Markets Dealers Association website. Borrowing costs on the nation’s $500 million of Eurobonds due January 2021 declined two basis points to 3.716 percent today.

Nigeria’s inflation rate eased to 12 percent in December, from 12.3 percent a month earlier, the first decline in three months as the effects of flooding that damaged agricultural output began to recede, the West African nation’s statistics bureau said yesterday.

Ghana’s cedi rose 0.1 percent to 1.9065 a dollar in Accra, the capital.

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